Property rental

The property rent refers to the total rent agreed upon for a specific rental property-as distinct from the local comparative rent or an abstract market rent. It generally comprises the net rent (excluding utilities) plus the agreed-upon advance payments for operating costs and forms the basis for the economic assessment of a lease. The property rent is the decisive starting point for calculating the gross rental yield of an investment property.

Property Rent in Relation to the Local Comparative Rent

The property rent may be above, below, or at the level of the local comparative rent. If it is consistently well below this level, it is referred to as a sub-market rent-a common phenomenon in long-term leases in older buildings in Nuremberg where the rent has not been increased for years. If the property rent is above the comparable rent, this is a sign of a market-rate or even above-average lease.

When making real estate investments, many investors deliberately purchase properties with rents below market level in order to realize potential for rent increases after acquisition. This potential is limited by the cap-in Nuremberg, the rent may not be increased by more than 20% within three years, up to a maximum of the local comparative rent.

Calculation example for Nuremberg: A 70-square-meter apartment in the Südstadt district currently commands a net rent of 700 euros. The local comparative rent according to the rent index is 13 euros/square meter = 910 euros. The difference of 210 euros per month can be gradually adjusted over three years (maximum 140 euros per increase notice) to the level of the comparable rent-provided that the modernization depreciation allowance has not already been fully utilized.

Calculation of the gross rental yield based on the property rent

The gross rental yield is calculated as the ratio of the annual net rent excluding utilities to the purchase price:

(Annual net rent excluding utilities / Purchase price) × 100 = Gross rental yield in %

For an apartment with a net rent of 800 euros per month (= 9,600 euros/year) and a purchase price of 240,000 euros, the gross rental yield is 4%. The net rental yield also takes into account incidental purchase costs, administrative expenses, and the maintenance reserve, and in practice is 0.5-1.5 percentage points lower. In Nuremberg, gross rental yields between 3.5% and 5% are currently realistic, depending on location and property type.

Rent Adjustments and Rent Increase Options

Property rent is not static. Landlords can increase the net base rent up to the local comparative rent-in Nuremberg, the cap limits the increase to a maximum of 20% within three years. The following rent models are available:

• Index-linked rent: The rent is automatically adjusted in line with the Consumer Price Index (CPI). Advantage: Protection against inflation without the need for a rent increase procedure. Disadvantage: Rent increases beyond the index are not possible.
• Graduated rent: The rent increases by fixed amounts at fixed intervals. Planning security for both parties, but no adjustment to exceptional market developments.
• Comparative rent: The classic rent increase based on the rent index. More complex, but more flexible.

We advise owners on which rental model offers the best foundation for a stable property rent in the respective market segment and neighborhood.

Property Rent in Commercial Leases

For commercial real estate, there is no cap and no rent control-the property rent can be freely negotiated and is based on supply and demand. Indexed rents are particularly common in the commercial rental sector, as they automate inflation adjustments. For long-term leases (10+ years), we recommend including a value protection clause that links the rent to a recognized index.

Practical Tip for Property Owners in Nuremberg and Franconia

Anyone buying or selling a rental property in Nuremberg should always compare the current property rent with the local comparative rent from the Nuremberg rent index. A significant gap below the market rate indicates potential for rent increases, but also an increased risk of tenant turnover following such increases. We analyze the economic situation of each rental property for you and provide a realistic assessment of the rent that can be achieved after a purchase or renovation.

We pay particular attention to old leases from the 1990s and 2000s, where the rent is often significantly below current market levels. The potential for rent increases and the time horizon until market rent is reached are important factors in purchase price negotiations.

Frequently Asked Questions

As a landlord, can I increase the rent at any time?

No. Rent increases must be justified in writing (e.g., by referring to the rent index), must be announced at least two months in advance, and may not exceed the cap (20% over three years, or 15% in tight markets). Furthermore, the local comparative rent is the absolute upper limit for increases.

What is the difference between the base rent and the all-inclusive rent?

The base rent is generally the net rent plus an advance payment for operating costs (= gross rent or all-inclusive rent). In the investment sector, the net rent is typically used for calculations, as operating costs are passed on to the tenants and have no impact on the owner. This distinction is important for accurately calculating the return on investment.

How do I determine if the property rent is in line with market rates?

The Nuremberg Rent Index (published by the City of Nuremberg, available on the city’s website) provides information on the local comparative rent based on neighborhood, year of construction, and amenities. In addition, current asking rents on real estate portals offer insight into the market situation. Upon request, we prepare a brief market analysis that assesses the current property rent and calculates the potential for rent increases.

Can the rent for a property also decrease?

Yes-if the landlord fails to fulfill their obligations (defects that the landlord does not repair), the tenant may reduce the rent. In the event of a significant oversupply in the market (which is not currently the case in Nuremberg), landlords may be forced to enter into new leases at lower rents. For existing leases, however, a rent reduction is only possible by mutual agreement.

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